AFP Separation Benefit System Exempt from Income Tax

June 18, 1993 BIR RULING NO. 258-93 AFP SEPARATION BENEFIT SYSTEM EXEMPT FROM INCOME TAX 99 297-88 258-93 Hi Eles Industrial Corporation Metro Manila Attention: Mr . Donato del Rosario General Manager This refers to your letter dated November 9, 1992 in effect requesting for clarification whether or not the Armed Forces Retirement and Separation Benefits Systems (AFRSBS) is exempt from VAT on its purchases of services from you. It appears that AFRSBS is claiming exemption from VAT on its purchases of services pursuant to Section 2(c) of P.D. No. 361, which states: cdt "c. All earnings of the system shall not be subject to any tax whatsoever." In reply, please be informed that from the aforesaid provision, the subject of tax exemption is merely earnings. In other words, AFRSBS is only exempt from income tax or other similar tax imposed directly on earnings. Accordingly, in the instant case, since value-added tax is imposed on the seller of service, AFRSBS' request for exemption thereof on its purchases of services from you is hereby denied for lack of legal basis. Grant of tax exemption is always strictly construed against the taxpayer. Moreover, VAT is an excise tax which when shifted to the buyer of the goods or services forms part of the costs thereof to be paid by the buyer. cdtech LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue